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Clinton's Familiar Third Rail


Clinton and Chris Dodd at the AARP event yesterday. (AP).

The Democratic presidential candidates finally took up the issue of Social Security at their Thursday debate in Davenport, Iowa, and Hillary Clinton showed she still believes the topic is the third rail of American politics (Touch it and die.).

Before the debate, Clinton had taken issue with a comment by Barack Obama -- who was not on stage Thursday -- that everything other than private accounts should be on the table when it comes to assuring the future solvency of Social Security. She said some things should be off the table, in addition to private accounts, among them raising the retirement age or reducing benefits.

PBS's Judy Woodruff, who moderated the AARP-sponsored debate, put the right question to Clinton. "In taking benefit cuts or private accounts off the table, as you have, are you saying, then, that it can be solely solved through higher taxes?"

"No, not at all," Clinton replied.

When Clinton initially took private accounts, benefit cuts and a higher retirement age off the table two weeks ago, I said to a Clinton campaign spokesman that her comments suggested she was leaving higher taxes on the table. "That's not what she said," he replied.

When I said that, if she was being explicit about taking certain things off the table, by implication she was then leaving other things on the table, among them raising taxes. "That's not what she said," he replied again.

Clinton's initial response to Woodruff on Thursday night demonstrated she's not ready to talk seriously yet about one of the biggest issues looming as her Baby Boom generation moves into retirement. What she said in Davenport was: let the economy handle it.

Clinton said the solution is merely to return to the economic prosperity of the 1990s. She noted that when her husband left office, the federal budget was in balance, there were huge projected surpluses and Social Security was estimated to be solvent long enough into the future to give policymakers the luxury of ignoring the problem for a while.

"Let's go back to doing what worked in the '90s to shore up Social Security," she said. "Let's quit taking money from the Social Security trust fund to fund tax cuts for the wealthy and the war in Iraq."

Clinton, of course, has already earmarked some of that Bush tax cut money to pay for her new health care proposal, but put that aside for the moment. While talking about the need to return to fiscal discipline, Clinton has come nowhere close to proposing a fiscal plan that puts the federal budget back into balance. Instead, she is calling for more spending for health care ($100 billion a year), more money to encourage alternative energy sources, more money for education.

Nor is there a way to wave a magic wand over the economy to get back to those golden days of the 1990s (which Clinton referred to, perhaps in a slip of the tongue, as "the first Clinton administration"). Then a series of forces -- including but not limited to government policy -- combined to create a remarkable period of growth. Still, even then, experts were urging policymakers to confront the future solvency problems for Social Security and Medicare.

During Thursday's debate, Joe Biden initially agreed with Clinton about what the Bush administration has done to the federal fiscal picture and the national debt. But as the discussion continued, he challenged her assertion that the economy can solve the problem for Social Security financing.

"I was there in '79 and '83 when we fixed it," Biden said, referring to the last major bipartisan plan to deal with Social Security, which involved changes in both taxes and benefits. "Let's not kid each other," Biden said. "It wasn't just economic growth that did it. It takes some hard decisions sometimes."

It took John Edwards to force Clinton to be more specific about her views on raising Social Security taxes. Both he and Biden suggested that raising the cap on income covered by the payroll tax would generate considerable future revenues and therefore ease the future financing problems.

Edwards offered his own thoughts on how to adjust that cap in a way that would affect people earning more than $200,000 a year. Asked by Woodruff if she agreed, Clinton again appears to hedge. "I want to focus on the fiscal responsibility piece of this," she said. "Before we do anything else, we need to get back to what was working."

"So was that a no?" Edwards asked.

"It's a no," Clinton replied.

That means for now, Clinton has taken off the table not just private accounts, benefit cuts and raising the retirement age, but also some form of raising the cap on payroll taxes.

Clinton has won praise this week for having dealt realistically with health care. Her new plan, while subject to criticism, debate and revision, represents a significant change over what she had proposed during her husband's administration. It was a straightforward attempt to deal with a significant domestic problem.

On Social Security, she gives every indication that she is not yet ready to be so straightforward. She has long espoused fiscal discipline as part of a Democratic economic platform, and she is correct that robust economic growth over a sustained period of time will help ease the program's solvency problems.

But as several of her rivals said on Thursday, and many leading experts long have argued, that alone is not likely to be the entire answer. Confronting that reality may be risky politics for a politician whose supporters skew older rather than younger, which may be why the Clinton who appeared on stage in Davenport sounded so cautious, rather than the voice of experience she claims to be.

--Dan Balz

By Washington Post editors  |  September 21, 2007; 1:04 PM ET
Categories:  A_Blog , Dan Balz's Take  
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Comments

HA HA HA HA HA HA HA HA HA HA HA HA HA!

Posted by: sawargos | September 24, 2007 9:50 PM | Report abuse

Fixing Social Security is very easy.

Make it a real defined benefit pension plan, instead of the fake one it is now, by replacing the PayGo system with Actuarial Advance Funding (AAF) and also add strong laws with teeth to protect the assets and the past service accrued benefits.

AAF was invented 150 years ago and migrated to defined benefit pension plans in 1921 when it was first used in the NY State Employees Retirement system.

It was widely used in the post-WWII years and finally enacted into law when ERISA was passed in 1974 requiring that all DB pension plans must use it.

At that time, ERISA was far and away the largest and most complicated set of laws ever passed by Congress.

There were also many other laws involving pension plans including many designed to protect the assets and the past service benefits, but unfortunately the laws had many serious flaws in them and these were exploited by many pension plan sponsors beginning in the early 1980's.

Enrolled Pension Actuaries were the chief enablers. They are not the highest paid profession in the world for nothing.

Done right however, a defined benefit pension plan is a marvel.

AAF, using an Actuarial Cost Method known as The Entry Age Normal cost method, lowers the cost dramatically (once the initial past service accrued past service benefit liability has been amortized) and stabilizes that cost as a level % of pay.

I estimate the Entry Age Normal Cost of Social Security done this way would cost less than 3% of pay--as compared to the present 12.4% of taxable wages, which if you exclude the SSI part and include the 2% the system is underfunded by and then make it as a % of total pay to compare apples with apples, is around 10% of pay by comparison.

How to you like paying more than 3 times what you should be paying for the identical benefits?

How do you like the system constantly being 'reformed' by our Washington politicians?

How do you like Bush and the other Republican leadership, with enormous financial support from life insurance companies, along with their actuaries, and Wall street brokers trying their best to privatize it, so they can sell you their vastly overpriced products?

Then ignore what I just said and I guarantee that you will have either higher taxes and lower benefits--the Democrats 'reform'--or the system being privatized by the really bad guys.

I've been saying this for 43 years, ever since I took an actuarial exam in NY City.

I know this works since I have been doing it for much of my career.

Isn't it about time we fixed it?

Every year that goes by costs us almost an additional trillion dollars in lost investment earnings--and the baby-boomers are rapidly approaching which will make fixing it infinitely harder.

Can we be stupid forever? Maybe so.

If we do not understand and fix the easy stuff like Social Security how will we ever fix the hard stuff like our dumb, wasteful medical care system?

That system needs the identical Actuarial Advance Funding methodology.

To fix this badly broken system we need to make it a Universal Single Payer National Health Care system--one that is also Actuarially Advance Funded using The Entry Age Normal Cost Method.

Been sayng that for several decades.

All the Democratic Presidential candidates want some form of a national health care system, but you cannot have a viable sustainable one unless you do this.

In the meantime, Bush is privatizing Medicare as I speak.

He does this by cutting doctor and hospital payments thus driving them into the hands of the private health insurance industry.

This began under Reagan, by his Chief of Staff, Don Regan, formerly head of Merrill Lynch (which owned many insurers), and was helped a lot by New Gingrich in 1994, who received $2 million for his PAC from an insurance company by the name of the Golden Rule Insurance Company--you know--'Do unto others...".

Never before has their been such an immoral major scam. Trillions of dollars are involved and it is not confined to just the US, it is global.

Oh, well...so it goes.

What the hell...it is only a few more trillion on top of the 9 trillion in national debt Bush has run up and Bush's Iraq war, which has cost us around $4 trillion, including paying for the 26,000 injured soldiers, many of them grievously.

A few trillion here a few trillion there, and pretty soon it may add up to real money.

---your friendly actuary
Andy Lang, FSA, MAAA

Posted by: andyclang | September 24, 2007 2:05 PM | Report abuse

More of the same from Hillary.

It's truly mind boggling how she manages to say nothing while simultaneously telling her audience of the day exactly what they want to hear. Hillary's greatest talent is convincing the people she's standing in front of that she is the candidate who will give them what they want. You want to stay and fight in Iraq? 'We'll be leaving our troops in Iraq.' You want out of Iraq? 'We'll withdraw!' You want social security? 'No problem.' Don't want to pay for it? 'No problem!' 'Don't worry, seniors, we won't make you work longer. Don't worry taxpayers, we won't make you pay taxes.'

She can't be telling the truth to everyone.
She garners support by telling everyone exactly what they want to hear, without offering any realistic answers.

Posted by: julieds | September 24, 2007 1:04 PM | Report abuse

I figure that it takes initiative, ambition, hard work and the ability to apply one's self to "beat the cap" and have more of the money, I earn, in my pocket, to invest in my retirement, donate it to charity or have our family over for the holidays. For more years than I can count, every year that I have tried to earn more than the cap in place, it got raised. When I finally succeeded, it was great having some extra cash to pay for these things.

The first thing that the candidates need to address is the elimination or correct the inherent problems within the tax since indexing for inflation of the "alternative minimum tax" or AMT has not taken place since the 1960's.

Now, about this sub-prime mortgage crises- Alan Greenspan made the mistake of "measured paces" for increasing the Fed Funds Rate. Chairman Paul Bernanke, recently saw the light (or felt the heat) and cut the Fed Funds Rate by 1/2%. Did you notice something? No inflation!!! The Central Bank of Japan had their "Fed Funds" rate point at a near zero percent for over eight years. When the FOMC had the Fed Funds rate at 1%, the economy wasn't "overheating," there was no "irrational exhuberance" in the stock markets and it has become obvious that wages have not kept up the rising rates from the FOMC. If the economy is not having problems (I see a recession, not the inflation exhibited by the Carter Administration, why tinker with the Fed Funds rates? What should the FOMC do? Target the Fed Funds Rate cuts to target at 2-2.5% within the next six to 12 months and if necessary, keep dropping the rates until our economics are domestically settled. This is another "hidden tax." We should also consider looking into income averaging and the deduction of loans and credit card interest from our taxes as another form of tax-relief. This will also encourage people (including those internationally) to "Buy American."

Posted by: Computer_Forensics_Expert_Computer_Expert_Witness | September 24, 2007 12:51 PM | Report abuse

Wow.

Ten years of experience shows that you can kill any Social Security thread with an injection of numbers and a link;

Social Security Trustees Annual Reports
http://www.ssa.gov/OACT/TR/index.html

The narrative never survives. Kind of like throwing water on the Wicked Witch of the West Wicked Witch of the West Wing

Posted by: bruce.webb2 | September 23, 2007 9:30 AM | Report abuse

Here's a FOURTH RAIL: My CONSERVATIVE MUSIC CD at www.conservativemusiconline.com
I give Hillary what she deserves, along with Sean Penn and the whole lefty crowd. Someone had to do it!
www.conservativemusiconline.com

Posted by: Truscott1 | September 22, 2007 11:31 AM | Report abuse

Julie I don't want to take over the thread. I have a whole website devoted to Social Security numbers, and your question is answered in various ways there. Too the best ongoing discussions of Social Security are found at Angry Bear and Economist's View. Or of course you can go right to the source and check out Dean Baker's Beat the Press (an American Progress blog) where Dr. Baker regularly takes the press to the woodshed for their economic reporting on Social Security and deficits.

Short answer. Borrowing the Social Security surplus for the war or anything else has no direct relation to solvency. All arguments to the contrary rely on one type or another of special pleading about future government's ability to repay the funds with interest, most of it meant by design to obscure the real issues.

Posted by: bruce.webb2 | September 22, 2007 11:20 AM | Report abuse

Darren they also predict 1.7% ultimate produtivity, and 2.0% real GDP and productivity and growth are the drivers.
By their own numbers there is not a five year period back to 1960 with growth that low and only two individual years since 1996 sub 2.0%. So while 2.0% real GDP is not unreasonable in any given year, to use it as your median point for the next 75 years seems odd. Not every five year period will return 4.1% real GDP as we had from 1995 to 2000, but suggesting that the logical rate of growth going forward is only half of that needs some explanation.

As to 1.4 million immigrants being unlikely, well by their own figures 2005 experienced 1.24 million immigrants. We are expected to believe that we will drive that number to 900k by 2030 and keep it at that level forever, which would mean that over time the number of foreign born Americans would shrink in relative terms. And then we are told that the fundamental problem is demographic, too few workers per retiree. Well sorry there is a logical hole there, if we need workers we will get them where we have since before this country was a country - through immigration. There is no reason to believe we could, would or should limit immigration to Intermediate Cost assumptions.

Low Costs 4.5% employment may be optimistic, then again that is where we are at now. So I would flip that question around. Why are Intermediate Costs 5.5% unemployment and 2.0% real GDP logical mid-points?

You can cherry pick one data point or another out of Low Cost as being too optimistic and probably be right, but that has to do with the limitations of their model. But if you read the Reports in order from 1997 you will be a consistent pattern of Low Cost being a better measure of the economy than Intermediate Cost with the result that the EPI chart shows; depletion and shortfall being pushed out into the future and the payroll gap shrinking. If there really was a crisis then inaction should have caused it to get worse. Instead the reverse is true.

I am not particularly impressed by that 2.5% probability given that their track record for first year predictions has been predictably pessimistic for a decade. As an example they pegged 2007 unemployment at 4.8%. Well Low Cost's 4.5% is looking pretty good.

I don't have to hit every number of Low Cost to validate my case, the economy just has to outperform Intermediate Cost on balance. Which it has.

Posted by: bruce.webb2 | September 22, 2007 11:11 AM | Report abuse

Once again, Hillary plays Santa Claus, the Easter Bunny or whatever. Social Security was begun back when life expectancy was much lower. Raising the age to 70 is one huge way to get the system back on track. A tax increase should only be considered after all other alternatives have been considered. The tax, as is not the case, should apply to all wages with no cap as should the Medicare tax, but with a reduction in rate for lower incomes and an increase for higher. There simply is no other way.

Barack Obama and other candidates realize this and are offering helpful and realistic solutions while Hillary pander. I can't fathom why people don't hold her to account on this.

Posted by: travelgallery | September 22, 2007 8:54 AM | Report abuse

Bruce, I _have_ reviewed the trustee's report and it says that the "low cost" scenario which you hope will obviate the need for fiscal reform assumes "a higher fertility rate, slower improvement in mortality, a higher real-wage differential, and lower unemployment." Some assumptions over 75 years: inflation at 1.8%; unemployment at 4.5%; and 1.3 million immigrants annually. The trustees don't think this scenario is likely: "there is something on the order of only a 2.5 percent probability that it will be as favorable as that portrayed by the low cost projection" (II.D.7)

In other words, the economy is not going to solve the problem - as least not according to the trustee's report.

Posted by: darrengreway | September 22, 2007 1:28 AM | Report abuse

Bruce, I confess I have only read these posts, and not yet the material you reference. So, my question is this: are social security tax proceeds used to fund "non-budgetary items" such as the war in Iraq? If so, what affect has that borrowing had on social security's solvency, if any?

Thanks.

Posted by: julie | September 21, 2007 10:49 PM | Report abuse

Why is it that all you talk about is Hillary?
Give me a break!!

Posted by: jillcinta | September 21, 2007 10:19 PM | Report abuse

I wrote a letter to Congressman Ben Chandler (Dem.-Ky.) last year and he was gracious enough to meet me on the very subject that Brice Webb elucidated above. He told me that thewre was no political interest by the Dems at that time because the Republicans were twisting in the wind on the issue and because they knew the SS "problem" was false.

My plan was (1) Force an open report to the American people every year by the President on the SS Trustees projection so everyone could be made to understand why the Trustees were using projections of economic growth for most of the next 75 years that are 75% BELOW THAT OF THE LAST 75. That would unmask the the issue of what is going to happen to our ECOMY, must less SS were that to happen, including the equities market.

(2) Adjust to solvency under the "approved" forecast voted on by Congress and signed by the President to make them accountable.

(3) Examine the results every 5 years and re-adjust to keep the fund "on-track"

The SS "crisis" would be unmasked as the hoax it is.

Thanks Bruce for your focusing on this. H. Clinton is spot on in her approach.

Posted by: MyCut | September 21, 2007 8:52 PM | Report abuse

One should ignore any view of the solvency of Social Security that is based on Social Security some day receiving money from the "Social Security Trust Fund," which is the greatest theft and fraud in the history of the world. We have been overtaxed by trillions of dollars to build the trust fund, which supposedly exists so that when it is needed, there will be money to pay Social Security benefits, and we don't have to raise taxes, cut other spending, or cut benefits. One problem -- THERE IS NO TRUST FUND. Every dime of it has been spent and always was spent day one, by Democrats and Republicans. When the day comes for the "Trust Fund" to start paying benefits, all that will exist to pay it is a piece of paper from the US Government saying "I owe Social Security." And the only way for the government to pay will be to raise taxes, lower other spending, or reduce benefits.

Posted by: woocane | September 21, 2007 7:30 PM | Report abuse

as a reporter for more than 30 years in kansas city i got to know mr. truman enough to say and borrow a line from lloyd bentsen to state "Mr. Bush you are no Harry Truman".

Posted by: drno1 | September 21, 2007 7:10 PM | Report abuse

Require all branches and agencies of government to recognise that Social Security receipts are Payables not Income! Money taken from employee paychecks and employer contributions for Old Age Security and Disability Insurance (OASDI) should only be used for OASDI--not all other so called "Social Security" programs passed by Congress. If Congress mandated return of everything stolen from OASDI over the past five decades there would not be a problem funding the retirement of seniors either today or future!

Posted by: ChoKum | September 21, 2007 7:04 PM | Report abuse

I watched an half-hour of the debate last night, and was simply agog at the high quality of the Democratic Party's candidates. This was the first time I'd seen them interact and respond to questions (Woodruff was great, by the by). To a person, the candidates are lucid and measured. They are a credit to the party.

I was especially struck by Edwards'--the facility of his mind and his willingness to tackle head-on very tendentious issues. To judge by his attacks on Clinton, all of which were, so to speak, above the belt, but powerful nevertheless, he must have been one hell of a plaintiff's attorney.

I don't have anything to add to the SSS discussion. I haven't studied it nearly as well as other contributors. I'm grateful for their posts--and their FICA deductions.

Posted by: jerseyboy | September 21, 2007 6:54 PM | Report abuse

I wonder how many average Americans who worry about this issue have any idea how many billions "we" give to foreign countries every single year for rediculous supposed political reasons. The numbers are staggering. Add this to trillions on a war most of us do not want and then tell us there isn't enough money for SS. It takes time to investigate where a LOT of money, a GREAT DEAL of our tax dollars go. Maybe we should ask for a simplified yearly account of just who is getting all of this money and why. The rest of the world is so used to getting it while we are questioning our ability to deliver on basic paid for retirement benefits. Is there NOTHING we can count on any more with all these proposed changes in the rules? I think someone should ask us if this is how we want our money spent. When was the last time someone asked YOU other than your neighbor???

Posted by: kj-53 | September 21, 2007 6:34 PM | Report abuse

Dan, you infer that Hillary's health care plan constitutes $100 billion in new spending, as if that would not be offset by some other savings or new revenues. Since I know you have read her plan and the assumptions behind it, you already know that this is an incorrect inference.

Posted by: ssoto | September 21, 2007 6:04 PM | Report abuse

Thanks to Bruce Webb for his spot-on comment and reference to Dean Baker's book. I've been saying this for a decade to anyone who will listen and their eyes just glaze over as they babble on about the "crisis." Reporters who don't do their homework are bad enough, but how can we vote for candidates who don't educate themselves in the basics at least as well as the rest of us? If it's all a game, and the candidates really know but are just playing at keeping voters in a constant state of non-existent crises, the process is a sham and a delusion, and we should be ashamed for not demanding better.

Posted by: acar | September 21, 2007 5:41 PM | Report abuse

The 3rd Rail? My MUSIC CD, where Hillary and the left get their due--to music.
www.conservativemusiconline.com

Posted by: Truscott1 | September 21, 2007 5:17 PM | Report abuse

Re- raising retirement age.
It is true that the average individual lives far longer today than when Social Security was instituted. But, averages can obscure details. The figures indicate that for manual laborers/blue collar workers, life expectancy beyond 65 is nowheres near that of white collar/professionals.
There are presumably a number of reasons for the disparity, including health effects of workplace environment, personal diet and exercise choices, availability of medical care, and so on.
My point is not that simply raising retirement age is a bad idea- it is that it is an option with a number of implications- it would, other things being equal, mean that laborers disproportionately would not make it to retirement age. That is a piece of social policy which should be considered as we debate the overall Social Security issue.

Posted by: jhherring | September 21, 2007 3:21 PM | Report abuse

Dan have you ever examined the economic projections that underlay the Intermediate Cost (i.e. standard projection) alternative? It doesn't require 90's era growth to fully fund Social Security, in fact all things being equal it just would require trend growth (i.e. productivity of 2.1%).

With the exception of a certain columnist in the NYT there is little to no evidence that any political reporter has examined the numbers at all, instead there is only what I can describe as lazy stenography of standard talking points largely but not entirely originating in Cato's Social Security Project.

The key economic tables in the Social Security Trustees 2007 Report are V.B1, VI.A4, & VI.F7 & F8 and can be found here;
http://www.ssa.gov/OACT/TR/TR07/trLOT.html
The results of the three alternatives are displayed graphically in Figure II.D7 which can be found here;
http://www.ssa.gov/OACT/TR/TR07/trLOF.html

You will note that alternative I in this figure (Low Cost) results in a fully funded Social Security system through the 75 year window. All it would take is hitting the numbers in V.B1, which are pretty low hanging fruit.

You like most reporters are working from an assumption set that hardened in stone in the early nineties. In contrast the numbers have been moving under your feet. The trend revealed in this Economics Policy Institute table are at this point probably irreversible, by the numbers Social Security is fast healing itself. But nobody is noticing because nobody is looking.
http://www.epinet.org/content.cfm/issueguides_socialsecurity_changes
There is a word for a program outlook that keeps getting pushed back in time and left unaddressed continues to shrink in magnitude. That word is not 'crisis'. I could go on for pages, (in fact I have, a Google search on my name and 'Social Security' turns up 1.2 million results) but really what somebody needs to do is to interview economist Dean Baker who literally wrote the book on this almost a decade ago; Social Security: the Phony Crisis. The numbers that have been rolling in since have fully validated Dr. Baker's thesis.

Social Security is simply not broke. You could look it up, in fact please do. Or read Dean's book.

Bruce Webb, Everett Wa.

Posted by: bruce.webb2 | September 21, 2007 3:16 PM | Report abuse

Why not raise the retirement age? People are living far longer than they used to. Moving the retirement age a couple of years would greatly improve Social Security's solvency, without requiring any complex changes. To be fair, the change would need to be phased in gradually. But why should this simple, effective option be off the table?

Posted by: Blarg | September 21, 2007 2:57 PM | Report abuse

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